Binance, the world’s largest cryptocurrency exchange, has announced that its user asset security fund (SAFU), with a scale of $1 billion, will now be 100% converted into USDC. Previously, the asset portfolio of SAFU included BNB, BTC, USDT, and TUSD. Binance established the SAFU fund in July 2018 to compensate and protect investors in the event of extreme situations or security issues causing user asset losses. Since its establishment, Binance has committed to allocating a certain proportion of trading fees to enhance the fund’s scale and ensure user protection.
Binance released an update on SAFU today, stating that it has been monitoring the scale of the SAFU fund over the years, maintaining a balance that is sufficient to safeguard user funds. Although the scale of SAFU may fluctuate, it generally remains at $1 billion.
SAFU is a core component of Binance’s ecosystem and the exchange is constantly evolving to adapt to market conditions. Binance has now decided to convert 100% of SAFU’s assets into USDC. By using a trusted, audited, and transparent stablecoin, Binance aims to manage the SAFU fund and further enhance its reliability, ensuring that the fund’s scale remains stable at $1 billion.
Previously, SAFU’s asset composition has sparked controversy. In 2022, the $1 billion asset portfolio consisted of BUSD, BNB, and BTC, with BNB accounting for 44%, BUSD accounting for 32%, and BTC accounting for 24%. Due to the fund being primarily composed of the platform coin BNB, it was criticized by the public for having significant risks similar to FTX filling its fund with FTT.
In March 2023, the stablecoin BUSD, which was issued in collaboration between Binance and Paxos, came under scrutiny from US regulatory agencies. Paxos announced the termination of its partnership with Binance and the cessation of BUSD minting. In response, Binance replaced the balance of BUSD in the SAFU fund with TUSD and USDT to continue protecting users.
After this adjustment, SAFU primarily holds BTC, BNB, USDT, and TUSD assets. Following Binance’s announcement, according to on-chain data tracking, Binance transferred 16,277 BTC (approximately $1 billion) and 1.36 million BNB (approximately $750 million) to a hot wallet, and 1 billion USDC to the SAFU wallet address.
Although USDC has low volatility, some speculate whether Binance’s decision to exchange BTC and BNB for stablecoins is due to concerns about reaching the market peak and potential high losses. As Binance has transferred a large amount of BTC and BNB to its official hot wallet, it is uncertain whether these will be sold. Perhaps Binance simply aims to strengthen the exchange’s asset reserves.
In the stablecoin market, USDT issued by Tether has maintained its dominant position with a market capitalization approaching $110 billion, thanks to its first-mover advantage. However, its account transparency, collateralization ratio, and other issues have raised multiple concerns in the past. After BUSD faced regulatory setbacks, TUSD emerged as a rising contender and became a favorite of Binance last year, significantly increasing its market share. However, subsequent events such as disconnection and close ties with Tron founder Justin Sun triggered a crisis of trust, causing TUSD’s market capitalization to plummet from a peak of $3.5 billion in September last year to the current $500 million.
In comparison, USDC seems to be favored by the market due to its compliance. In a report in February this year, analysts from JPMorgan warned of the risks that USDT poses to the overall cryptocurrency market and expressed a more favorable view of USDC. They highlighted that Circle, the issuer of USDC, has recently applied for a public listing in the United States, demonstrating the company’s plans for international expansion and proactive preparations for forthcoming stablecoin regulations.
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